You have probably heard lenders talking about a mortgage rate lock, but do you really know why it is to your advantage when used correctly?
At it’s core, a rate lock is a way of guaranteeing you a rate for a certain length of time regardless of what happens in the market. When rates are seemingly on the rise, this can be very beneficial. Let’s look at two examples of how a rate lock is helpful.
A Temporary Rate Special
We often feature below-market specials that we know are only going to last for so long. Let’s say a borrower know he or she is going to need a loan in the next 30 days, but the special could end any day. By locking that rate, you can guarantee to hold onto it for whatever length of time is offered, commonly 30 days, but often shorter or longer.
You Found a Good Rate in a Climbing Market
At the time this article is posted, we are seeing rates go up every day. This would be a case where locking a rate could be a good idea so long as you don’t lock at the high point. Say industry trends and events are showing rates unlikely to decline in the next month. You’re best bet is to lock the rate in and watch the market increase while your rates stays the same.
Locking isn’t always a good idea. Sometimes, you want to float, which essentially means let it ride and see what the market does the next day.
The Rate Lock is “Free” and Without Obligation
Free is in quotes above because there are different lock lengths that are rolled into the cost of the rate. The longer you want to lock a rate in, the higher the rate. A pretty standard lock period is 21-30 days. Some lenders offer shorter locks that can result in even better rates. There are also locks that extend months out, but you pay a premium for safety.
There is no actual fee for locking a rate so if you decide you don’t want to do anything with your secured rate, just let it expire. It won’t do you any harm.
The main thing to take away is that a rate lock is one of your best tools in loan shopping, but you need to use it right. Let an experienced, knowledgeable loan officer like the ones at First Equity Direct guide you so that you know when to lock and when to float. You’ll come out way ahead if you do.